Professional Documents
Culture Documents
Consumers, producers
and the efficiency of markets
1. It is a hot day, and Jamel is very thirsty. Here is the value he places on a bottle of water:
a. From this information, derive Jamel’s demand schedule. Graph his demand curve for
bottled water.
b. If the price of a bottle of water is Tnd4, how many bottles does Jamel buy? How much
consumer surplus does he get from his purchases? Show Jamel’s consumer surplus in your
graph?
c. If the price falls to Tnd2, how does quantity demanded change? How does Jamel’s
consumer surplus change? Show these changes in your graph?
2. Samir owns a water pump. Because pumping large amounts of water is harder than pumping
small amounts, the cost of producing a bottle of water rises as he pumps more. Here is the cost
he incurs to produce each bottle of water:
a. From this information, derive the Samir’s supply schedule. Graph his supply curve for
bottled water.
b. If the price of a bottle of water is Tnd4, how many bottles does Samir produce and sell?
How much producer surplus does he get from these sales? Show Samir’s producer surplus
in your graph?
c. If the price rises to Tnd6, how does quantity supplied change? How does Samir’s producer
surplus change? Show these changes in your graph?
3. Consider a market in which Jamel from problem 1 is the buyer and Samir from problem 2 is the
seller:
a. Use Samir’s supply schedule and Jamel’s demand schedule to find the quantity supplied
and the quantity demanded at prices Tnd2, Tnd4 and Tnd6. Which of these prices bring
supply and demand into equilibrium?
b. What are consumer surplus, producer surplus and total surplus in this equilibrium?
c. If Samir produced and Jamel consumed one less bottle of water, what would happen to
total surplus?
d. If Samir produced and Jamel consumed one additional bottle of water, what would happen
to total surplus?
4. Suppose the weekly demand and supply curves for used DVDs in Lincoln, Nebraska, are shown
in the diagram. Calculate and graph:
Price (DVDs/week)
$12
S
$10.5 D
$6
6 Quantity (DVDs/week)